Two chemical oxygen generators were put on board an Air New Zealand passenger flight from Auckland to Canada in 2009. Photo / Paul Estcourt

Military bosses were told "it is important the RNZAF does not cover up" its illegal shipment of pyrotechnic canisters which endangered the lives of hundreds of passengers on an Air New Zealand flight.

The incident was first revealed by the Herald, which has now been provided with a copy of the report into the safety breach that says it "endangered the lives of civilians" and "brought the reputation of the RNZAF under considerable threat".

The internal report told military commanders that they could minimise the damage to the air force's reputation by telling appropriate agencies it happened. The report said "openness to relevant authorities" could "prevent serious repercussion or damage to the RNZAF's reputation should concealment be uncovered by any airline, TAIC [Transport Accident Investigation Commission] or media in the future".

As it happened, no one was told of the incident until it was uncovered by the Herald during its investigation into the air force's safety record.

Major changes have now been ordered to the air force's safety structure and external oversight.

The air force has maintained the failure to tell the Civil Aviation Authority, TAIC, Air NZ or any other party was accidental. TAIC was initially misinformed about the nature of the incident - a Defence Force spokesman later said the air force "failed to close the loop" by providing the investigation report into the incident.

The CAA is investigating after the Herald revealed the incident, in which two chemical oxygen generators were put on board an Air NZ flight from Auckland to Canada in 2009. The same sort of canisters - banned from passenger flights - led to a passenger jet disaster, killing more than 100 people. The investigation found military bosses could have been jailed over the breach. The Defence Force could have been blacklisted from civilian airlines.

Investigators found "a considerable number of larger organisational factors and preconditions" led to the safety breach. It also emerged the canisters flown to Canada were actually more dangerous than previously revealed. Neither was properly wrapped or had "safety pins" in place to stop accidental ignition, and one was damaged.

Investigators found injury or death from the shipment could have led to "serious criminal charges" against those involved - including Defence Force commanders. The act of shipping the canisters could still see those involved, and senior commanders, charged under the Crimes Act and/or hazardous goods laws which carry a three-month jail term.

They found "RNZAF's moral responsibility for the safety of the people" in the flight was "of at least equal importance and significance as any other liability".

The CAA investigation is ongoing. The initial inquiry identified "communication processes between the RNZAF and civilian agencies" as needing further investigation.

Safety ideas slow to be implementedThe incident which endangered the lives of hundreds of civilians was raised by air force safety experts investigating the 2010 Anzac Day Iroquois helicopter crash.

In a report which the Defence Force refuses to release, they listed the Air NZ incident among those which could have been avoided if the RNZAF put in place safety recommendations. In the decade before, only 47 per cent of recommendations from the formal Court of Inquiry process had been put in place.

A copy of the report was leaked to the Herald, which led to the Court of Inquiry report into the canister incident.

The Air NZ incident included telling air force command it needed a system to track safety recommendations. It said the system should include tracking recommendations which were closed without being acted on, warning "we may not be so lucky next time".

A State Service Commission review of the Anzac Day crash recommendation found 15 per cent had been put in place by March 2012 - almost two years after the crash - and 85 per cent by November. The inquiry was launched after the Herald probed the air force's safety record.